Markets shrug off highest rise in US inflation in almost 30 years

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US stock markets today shrugged off the country’s highest annual rise in inflation for almost 30 years, building on their record highs following news of President Joe Biden’s $1tn infrastructure deal.

Commerce department data showed the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 3.4 per cent compared with last year — the highest annual jump since April 1992.

Investors in bonds, whose returns are eroded by rising inflation, were unmoved as they struggled to work out how the Fed will react to the rise in inflationary pressures. Although the central bank suggested last week that rate rises could come sooner than expected, Fed governor Jay Powell told Congress that the central bank would act only when there was “actual evidence of actual inflation or other imbalances”.

Consumer spending was flat, according to the commerce department report, as Americans spent more on services as the economy reopened, but less on goods. Incomes dropped for the second month as the effect of federal stimulus cheques wore off.

Economists, however, remain optimistic, believing individual savings built up through the pandemic will drive consumption. That belief, together with a successful vaccination programme and an improving labour market, led one to suggest the US could experience consumer spending growth of nine per cent this year — the strongest performance since 1946.

Read our series: Inflation — a new era?

Global economy

The Bank of England continued to echo the Fed, arguing that UK price rises, although greater than expected, were “transitory”. It now believes inflation is likely to top 3 per cent in the coming months. Survey data meanwhile showed consumer confidence stalling in June, and spending on credit and debit cards falling as the Delta variant of coronavirus delayed the final loosening of pandemic restrictions. Commercial landlords are still suffering from severe shortfalls in rent.

Athens approved an €8bn plan for Europe’s largest urban regeneration project, regarded as crucial for Greece’s recovery from the pandemic. The scheme, which could bring up to 75,000 new jobs, is on the site of the city’s former airport and will feature beachfront villas, high-end stores, a marina, luxury hotels, a casino and the biggest public park in Europe.

The US is benefiting from a $1.9tn stimulus but the cost of inoculating most of the world by mid-2022 is barely three per cent of that at just $50bn, points out US national editor Edward Luce. The west should take up this once-in-a-generation chance to “stamp its brand on global wellbeing”, he argues.

Business

The US Federal Reserve relaxed pandemic restrictions on dividends and stock buybacks at US banks as stress tests showed they could comfortably survive $500bn of losses. The results could lead to a wave of shareholder payouts next week.

Companies editor Tom Braithwaite discusses the bitter battle between AstraZeneca and the EU over vaccine supplies, a situation not helped by last week’s legal ruling over contractual obligations that seemed to show “the EU won in theory and AstraZeneca in practice”. But despite the dispute over deliveries, he writes, the reality is that member states and their citizens are shunning the company’s jab, meaning unwanted doses are piling up.

Pandemic turbulence continues to hit the global travel industry. American Airlines pilots are in a row with the US carrier over staffing levels and flight cancellations while the UK industry called for more financial support as the government unveiled changes to its “green list” of safe destinations. Cruise operator Carnival reported a $2.1bn loss in its second quarter but reported strong demand for bookings. The locals in Venice are less keen to see the big ships return.

Markets

The combination of the pandemic and international sanctions has led to a crisis in North Korea, with big swings in its currency and food prices and the potential unravelling of the country’s unofficial market trading system, known as jangmadang. One defector said prices for food and basic goods had soared by between three and 10 times.

Jumana Saleheen and Lavan Mahadeva of the CRU consultancy write in the FT that there is nothing “super” about the current commodities cycle. The imbalance between supply and demand during the pandemic recovery period will probably ease as economies reopen and consumer spending patterns change, they argue

Although millions of people have lost their jobs and savings during the pandemic, the well-off managed to retain their income. Wealth correspondent Stefan Wagstyl examines their investment options.

Have your say

Horsesatemymoney comments on Bagpipes and barbecues: incentives abound to lure staff back to the office:

The “water cooler”moments are basically nonsense that doesn’t really happen anyway. All this bagpipery etc is silliness. Give people a proper reason to go in and they will do — I mean a real reason like something where face-to-face catching up is better, not fake incentives like food/music, and make your work environment better! But accept that people want to WFT, want flexibility and that they are fed up with wasting time, money and energy on commuting. Also, until most of your workforce is double-jabbed, people will have concerns around Covid and the impact of Covid precautions on the office environment — by which I mean no one is going to want to come in to wear a face mask all day.

Final thought

Have you taken to two wheels for getting round the city during the pandemic? Read the favourite routes of FT journalists across the world and share your own tips in preparation for our new FT Globetrotter series.